TORONTO, Feb. 11, 2021 /CNW/ - H&R Real Estate
Investment Trust ("H&R" or "the REIT") (TSX: HR.UN) announces
its financial results for the year ended December 31, 2020.
BUSINESS UPDATE
H&R is pleased to report financial and operating results
from 2020 that demonstrate the resilient nature of the REIT's
portfolio, and also reflect the prudent actions taken by management
in response to the extraordinary events that followed the arrival
of the COVID-19 pandemic. Management believes this resilience
is a function of the REIT's long-term strategic focus on
high-quality properties, high credit quality tenants, and strong
balance sheet, and required the concerted efforts of the team at
H&R working collaboratively with stakeholders to protect its
tenants, employees and investors.
Highlights from 2020 include:
- FFO per Unit of $1.67 in 2020
compared to $1.76 in 2019
- Expansion of liquidity to $1.1
billion of undrawn credit facilities to fortify the REITs
financial position
- A significant 10-year lease extension with Hess Corporation at
Hess Tower
- Substantial completion of the REIT's U.S. $496 million River
Landing trophy mixed-use development in Miami
- Agreement to sell the REIT's 172,000 sq.ft. Culver City office property for U.S.
$165 million, which closed in
January 2021
- Achieving the REIT's 25% gender diversity target for its board
of trustees
- Recognition by the Globe & Mail's Women Lead Here
initiative for gender diversity in senior management
President & CEO Tom
Hofstedter commented: "Notwithstanding the extraordinary
events and challenges faced in 2020, I am proud of how our team and
our business performed. Bad debt expenses were less than 4%
of revenues, our balance sheet is as strong as it has ever been,
and H&R is well positioned to take advantage of the
opportunities that seem likely to emerge in 2021, as the economy
and society begin to return to a post-pandemic new normal."
FINANCIAL HIGHLIGHTS
|
3 months ended
December 31
|
Year ended December
31
|
|
2020
|
2019
|
2020
|
2019
|
Rentals from
investment properties (millions)
|
$277.5
|
$282.2
|
$1,098.7
|
$1,149.5
|
Property operating
income (millions)
|
$183.6
|
$184.8
|
$663.7
|
$711.0
|
Fair value adjustment
on real estate assets (millions)
|
$70.0
|
($43.7)
|
($1,196.0)
|
($103.9)
|
Net income (loss)
(millions)
|
$111.6
|
$163.4
|
($624.6)
|
$340.3
|
Funds from operations
("FFO") (millions)(1)
|
$127.4
|
$133.7
|
$503.1
|
$529.1
|
FFO per Unit
(basic)(1)
|
$0.42
|
$0.44
|
$1.67
|
$1.76
|
Adjusted Funds from
Operations ("AFFO") (millions)(1)
|
$67.3
|
$89.4
|
$383.8
|
$401.6
|
AFFO per Unit
(basic)(1)
|
$0.22
|
$0.30
|
$1.27
|
$1.33
|
Distributions per
Unit
|
$0.17
|
$0.35
|
$0.92
|
$1.38
|
Payout ratio per Unit
(as a % of AFFO)(1)
|
77.1%
|
116.6%
|
72.3%
|
103.6%
|
Net Asset Value
("NAV") per Unit as at December 31(1)
|
$21.93
|
$25.79
|
$21.93
|
$25.79
|
|
|
(1)
|
These are non-GAAP
measures. See "Non-GAAP Financial Measures" in this press
release. H&R's management discussion and analysis
("MD&A") for the year ended December 31, 2020 includes a
reconciliation of net income (loss) to FFO and AFFO as well as the
calculation of NAV per Unit. Readers are encouraged to review
the reconciliations and calculation in H&R's
MD&A.
|
The primary reason for the decrease in rentals from investment
properties is net disposition activity over the past two
years. The REIT completed approximately $1.0 billion of asset sales compared to
$218.1 million of acquisitions over
the past two years, substantially repositioning its portfolio and
enhancing its internal growth profile. H&R continues to
actively reallocate capital through property dispositions to fund
value-creating developments, expand its residential rental platform
and strengthen its balance sheet.
Property operating income also decreased for the three months
and year ended December 31, 2020
compared to the respective 2019 periods, due to bad debt expense as
a result of the impact of COVID-19, which predominantly impacted
H&R's retail segment. The REIT's bad debt expense is
detailed below under the heading "Bad Debt Expense".
Net income (loss) before income taxes decreased by $68.9 million for the three months ended
December 31, 2020 compared to the
respective 2019 period, primarily due to a fair value adjustment on
financial instruments and a decrease in income from equity
accounted investments, partially offset by positive fair value
adjustments on real estate assets (primarily industrial properties)
as discussed below.
Net income (loss) before income taxes decreased by approximately
$1.1 billion for the year ended
December 31, 2020 compared to the
respective 2019 period primarily due to the following: (i) a
decrease in fair value adjustments of real estate assets (primarily
certain office and retail properties) of approximately $1.2 billion as discussed below; (ii) the
decrease in property operating income discussed above; and (iii) a
decrease in net income (loss) from equity accounted
investments. This was partially offset by fair value
adjustments on financial instruments.
FFO per Unit in Q4 2020 was $0.42
compared to $0.41 in Q3 2020 and
$0.44 in Q4 2019. Excluding the
Q4 2020 bad debt expense of $3.9
million, Q4 2020 FFO would have been $0.44 per Unit.
AFFO per Unit was $0.22 in Q4 2020
compared to $0.35 in Q3 2020 and
$0.30 in Q4 2019. H&R
deducts actual capital and leasing expenditures in determining
AFFO. These expenditures were elevated in Q4 2020 primarily
due to leasing expenditures incurred with respect to the Hess
Corporation lease extension discussed below. Distributions
paid as a percentage of AFFO was 72.3% for the year ended
December 31, 2020, resulting in
significant retained cash flow.
Fair Value Adjustment on Real Estate Assets
The financial results for the year ended December 31, 2020 include significant fair value
adjustments recorded in Q1 2020. These adjustments are a result of
H&R's regular quarterly IFRS fair value process, and reflect:
(i) an acceleration of challenging conditions in the retail
landscape impacting the valuation assumptions of retail properties;
and (ii) energy sector volatility that may have impacted the credit
quality of many companies operating in this industry and the
related impacts on office property market fundamentals in markets
with significant energy industry employment.
While the strong recovery in same-store sales at the REIT's
shopping centres and the improved cost and access to credit enjoyed
by energy sector tenants are encouraging, there have not been a
sufficient number of transactions in the applicable property
markets to warrant changes in these sectors in Q4
2020.
Fair Value
Adjustment on Real Estate Assets
(in thousands of Canadian dollars)
|
Q1 2020
|
Q2 2020
|
Q3 2020
|
Q4
2020
|
Year
ended
December 31,
2020
|
Operating
Segment:
|
|
|
|
|
|
Office
|
($668,904)
|
($34,210)
|
($2,666)
|
($6,049)
|
($711,829)
|
Retail
|
(656,358)
|
(7,882)
|
(7,804)
|
(15,190)
|
(687,234)
|
Industrial
|
6,891
|
(4,518)
|
10,155
|
95,392
|
107,920
|
Residential
|
19,600
|
(15,671)
|
93,353
|
(57,402)
|
39,880
|
Fair value adjustment
on real estate assets per the
REIT's proportionate share
|
(1,298,771)
|
(62,281)
|
93,038
|
16,751
|
(1,251,263)
|
Less: equity
accounted investments
|
(2,471)
|
4,605
|
(38)
|
53,209
|
55,305
|
Fair value adjustment
on real estate assets per the
REIT's Financial Statements
|
($1,301,242)
|
($57,676)
|
$93,000
|
$69,960
|
($1,195,958)
|
Residential properties in U.S. Sun Belt cities have seen
increased investment demand since the start of COVID-19 and this
has resulted in a decrease in the capitalization rates used as part
of H&R's regular quarterly IFRS fair value process in Q3
2020. In Q4 2020, H&R transferred an industrial property
from properties under development to investment properties
resulting in a $44.0 million fair
value gain. This fair value adjustment and the remaining fair
value adjustments to industrial properties are due to a continued
rise in rental rates and an increase in investor demand which have
resulted in a decrease in the capitalization rates used for these
properties as part of H&R's regular quarterly IFRS fair value
process in Q4 2020. The total fair value adjustment for the year
ended December 31, 2020 of
$1.2 billion resulted in an overall
NAV per Unit decrease of approximately $3.86.
Bad Debt Expense
Bad debt expense is classified as an expense and is grouped
together with other expenses in property operating costs. The
following table discloses H&R's bad debt expense by
segment. In determining these amounts, the REIT performed a
tenant-by-tenant assessment considering the payment history and
future expectations of default based on actual and expected
insolvency filings. H&R's retail segment was impacted
more than other segments due to government-mandated closures
primarily affecting the REIT's enclosed shopping centres.
Bad Debt
Expense
(in thousands of
Canadian dollars)
|
Q1 2020
|
Q2 2020
|
Q3 2020
|
Q4
2020
|
Year ended
December 31,
2020
|
Operating
segment:
|
|
|
|
|
|
Office
|
$13
|
$446
|
$168
|
$721
|
$1,348
|
Retail
|
70
|
22,842
|
12,808
|
2,550
|
38,270
|
Industrial
|
-
|
52
|
-
|
-
|
52
|
Residential
|
251
|
1,140
|
472
|
639
|
2,502
|
Bad debt expense per
the REIT's proportionate share
|
334
|
24,480
|
13,448
|
3,910
|
42,172
|
Less: equity
accounted investments
|
13
|
(958)
|
(844)
|
(675)
|
(2,464)
|
Bad debt expense per
the REIT's Financial Statements
|
$347
|
$23,522
|
$12,604
|
$3,235
|
$39,708
|
Tenant Closures
Many retailers have faced very challenging conditions in
2020. Several filed for Canada Companies' Creditors
Arrangement Act ("CCAA") creditor protection and several have
announced store closures. The REIT's focus on maintaining
affordable cost structures for its mall-based retailers has
resulted in above-average rent collections as compared to other
large mall owners, and high retention of store locations by tenants
planning store closures elsewhere.
To date, tenants occupying 138 stores and totalling 329,092
square feet have filed for creditor protection under the
CCAA. H&R expects to retain 89 of these stores, totalling
219,524 square feet.
H&R REIT continues to work collaboratively with its tenants
that have been affected by the pandemic. Retailers undergoing
CCAA restructuring has been an area of particular focus for
management, where retention of stores has exceeded 64%.
Management expects no closures from GAP, H&M, or L Brands in
the REIT's portfolio, and the REIT does not have any locations with
Brooks Brothers, Lucky Brands, J. Crew, Mendocino, Frank & Oak, Lole or Microsoft
Corporation, each of which has announced plans for store
closures.
In relation to the REIT's initial 2020 budget of approximately
$1.1 billion of gross revenue,
Primaris accounted for approximately $285
million. Of that amount, approximately $21.2 million of gross rent was attributable to
tenants undergoing restructurings or liquidations. Annualized
rental revenue has been reduced by approximately $12.3 million at the REIT's share, as a result of
both store closures and lease amendments, at the REIT's
share. Store closures, which provide the opportunity to
re-lease space to new tenants, account for $6.1 million of this amount, while temporary
lease amendments to rental rates for retained tenancies accounts
for the remaining $6.2 million of
this amount.
Among the 49 store closures for tenants that have filed for
creditor protection under the CCAA aggregating 109,568 square feet
across H&R's 13,704,000 square foot retail portfolio, leases
have been signed with replacement tenants for 23 stores for 35,672
square feet, with many having commenced occupancy. The rental
revenues from these new tenancies are expected to partially offset
the annualized $6.1 million reduction
in gross revenues relating to store closures in 2021, though the
magnitude of that offset depends significantly on tenant sales and
percentage rent participation. Similarly, the annualized
$6.2 million of gross revenue
reduction due to temporary lease amendments assumes no percentage
rent is collected under the temporary lease terms.
Rent Collection
Rent collection has been a key focus during the pandemic, and
one where H&R believes it has performed well while also
accommodating the needs of its tenants. As of February 5, 2021, H&R's rent
collections since the onset of COVID-19 are as follows:
Tenant
Type(1)
|
|
|
Share of
Rent(2)
|
Q2 2020
Collection(2)
|
Q3 2020
Collection(2)
|
Q4 2020
Collection(2)
|
January 2021
Collection(2)
|
Office
|
|
|
45%
|
99%
|
99%
|
99%
|
99%
|
Retail:
|
|
|
|
|
|
|
|
Enclosed
|
|
|
20%
|
65%
|
79%
|
83%
|
82%
|
Other
|
|
|
13%
|
93%
|
96%
|
95%
|
93%
|
Total
Retail
|
|
|
33%
|
75%
|
86%
|
88%
|
86%
|
Residential
|
|
|
16%
|
97%
|
97%
|
97%
|
96%
|
Industrial
|
|
|
6%
|
100%
|
99%
|
100%
|
99%
|
Total(3)
|
|
|
100%
|
91%
|
95%
|
95%
|
94%
|
(1)
|
Retail tenants in an
office property for the purpose of this table have been classified
as retail.
|
(2)
|
The average share of
rent and collections include monthly billings for base rent and
property operating costs.
|
(3)
|
April to September
collections include an aggregate amount of $11.8 million received
from the Government of Canada under the Canada Emergency Commercial
Rent Assistance program.
|
H&R's high-quality, long-term leased office portfolio
delivered strong rent collection consistent with the profile of the
tenant base, with 85.5% of revenues coming from investment-grade
rated tenants. Rent collection was also strong in H&R's
industrial and residential portfolios, reflecting the
stronger-than-average credit profile of the REIT's tenant base
across both of these portfolios.
H&R achieved an overall rent collection of 94% in
January 2021, compared to 95% in Q4
2020, 95% in Q3 2020 and 91% in Q2 2020.
Liquidity
Management took precautionary measures to further bolster the
REIT's liquidity as a result of the severity of the pandemic's
impact on economic conditions. During Q2 2020, the REIT secured a
new $500.0 million unsecured line of
credit from a syndicate of five Canadian banks maturing
April 17, 2021. The REIT also
arranged a new $100.0 million secured
mortgage on a previously unencumbered property, maturing in 2029.
Further, during Q2 2020, H&R issued $400.0 million Series Q Senior Debentures
maturing June 16, 2025, the proceeds
of which were used to repay lines of credit. During Q4 2020,
H&R issued $250.0 million Series
R Senior Debentures maturing June 2,
2026, the proceeds of which were used to repay lines of
credit. Notably, all of these financing measures were arranged
following the onset of the COVID-19 economic disruption,
underscoring H&R's strong access to capital availability and
cash on hand.
As at December 31, 2020, H&R
had $1.1 billion of unused borrowing
capacity available under its lines of credit, $62.9 million of cash on hand and an unencumbered
asset pool of approximately $3.7
billion.
Distributions
As previously announced in May
2020, in light of current operating and capital market
conditions, management recommended and the Board approved a 50%
reduction of monthly distributions effective May 2020, from $0.115 per Unit to $0.0575 per Unit, or $0.690 per Unit annually. For the year ended
December 31, 2020, this resulted in a
distribution decrease of 33.3%. This distribution rate provides
additional financial flexibility to absorb potential income
interruption related to the pandemic in the near term, and allows
for significant capital reinvestment into the REIT's developments
and properties to address tenant turnover without increasing the
REIT's financial leverage. The Board will continue to re-evaluate
the distribution on a quarterly basis taking into account a variety
of relevant factors including the REIT's taxable income.
SUMMARY OF SIGNIFICANT 2020 ACTIVITY
Developments
United States:
H&R's active development pipeline in the United States currently comprises five
residential developments with a total development budget of U.S.
$354.3 million. As at December 31, 2020, U.S. $305.2 million had been spent on properties under
development with U.S. $49.1 million
of budgeted costs remaining to be spent of which U.S. $45.1 million is available to be funded through
secured construction facilities, in each case at the REIT's
proportionate share.
The REIT's largest current development project is River Landing, an urban in-fill mixed use
development site in Miami, FL,
which is adjacent to the Health District with approximately 1,000
feet of waterfront on the Miami River, two miles from downtown
Miami. River Landing includes approximately 347,000
square feet of retail space, approximately 149,000 square feet of
office space and 528 residential rental units. In Q4 2020, the
retail and office portion of this project, known as "River Landing
Commercial", reached substantial completion and was transferred
from properties under development to investment properties. Retail
occupancy was 65.3% as at December 31,
2020, which includes the following major tenants: Publix
Super Markets Inc., Hobby Lobby, Burlington, Ross Stores Inc., Old Navy and
Planet Fitness. Committed occupancy for retail space as at
December 31, 2020 was 80.3% with the
remaining retail lease-up expected to occur during 2021. The REIT
is continuing negotiations with multiple parties on the office
space. As at December 31, 2020, 134
residential leases have been entered into and occupancy was 21.4%,
exceeding management's expectations on leasing velocity. The
residential portion of River Landing
is expected to be transferred from properties under development to
investment properties in Q1 2021. The total cost of the project is
expected to be completed on budget at approximately U.S.
$495.9 million of which $300.0 million was allocated to River Landing
Commercial and the remaining $195.9
million has been allocated to the residential space.
H&R has a 31.7% non-managing ownership interest in 38.4
acres of land located in Hercules,
CA, adjacent to San Pablo Bay, northeast of San Francisco, for the development of
residential rental units (the "Hercules Project"). Phase 1 of the
Hercules Project, known as "The Exchange at Bayfront", consists of
172 residential rental units, including lofts and townhomes and
13,762 square feet of ground level retail space. The four-storey
podium project sits on 2.2 acres over a one-level subterranean
parking garage. Construction commenced in June 2018 and substantial completion was achieved
in Q4 2020, resulting in the REIT transferring this property from
properties under development to investment properties. As at
December 31, 2020, 120 leases had
been entered into and occupancy was 68.0%. As at December 31, 2020, The Exchange at Bayfront, at
the 100% ownership level, was valued at approximately U.S.
$87.8 million compared to costs of
approximately U.S. $81.3 million,
resulting in a fair value gain of U.S. $6.5
million since the start of the project. The annualized
unlevered yield on budgeted cost is approximately 5.4% and the
project was completed on budget.
In December 2020, H&R acquired
5.4 acres of land in Dallas, TX
for U.S. $9.7 million, which is
expected to be developed into approximately 414 residential rental
units. The site is located within close proximity to
Downtown/Uptown Dallas and is also located near Dallas Love Field
Airport.
Canada:
Construction continued on the first phase of a 2.7 million
square foot industrial development in Caledon, ON. The first phase consists of three
buildings, which will total approximately 526,000 square feet upon
completion. In January 2020, H&R
completed a 10-year lease with Deutsche Post AG to occupy the
largest of the three buildings ("205 Speirs Giffen Ave.") totalling
342,821 square feet. Deutsche Post AG commenced occupancy in
November 2020 and a fair value gain
of $44.0 million was recorded as the
property was transferred from properties under development to
investment properties. As a result of COVID-19, H&R has
temporarily suspended construction of the second and third
buildings (140 & 34 Speirs Giffen Ave.).
In July 2020, H&R acquired
15.4 acres of land in Mississauga,
ON for $18.7 million which is
expected to be developed into two industrial buildings totalling
approximately 329,000 square feet.
In November 2020, H&R acquired
a 50% interest in 24.6 acres of land in Mississauga, ON which is expected to be
developed into one industrial building totalling approximately
500,000 square feet. The REIT's partner contributed the land valued
at approximately $36.9 million, and
H&R has contributed $2.1 million
with the balance of capital to be contributed as development costs
are incurred.
Future Intensification Opportunities
The REIT has many intensification opportunities embedded in its
portfolio. The fair market value that management ascribes to
these properties excludes the value that may be unlocked as these
projects progress.
In June 2020, the REIT along with
its partner, submitted a re-zoning application for the east and
north portions of its 3777 & 3791 Kingsway sites in
Burnaby, B.C. The proposal
could add over 2,000 residential rental units in four mixed-use
high density towers including retail and residential uses with
approximately 1,800,000 square feet of residential area and 44,000
square feet of commercial area. The REIT expects to obtain approval
for its re-zoning and site plan applications in Q4 2021.
In November 2020, the REIT
acquired 53 Yonge St. in Toronto,
ON, a five-storey 11,110 square foot office property, for
$11.5 million. The REIT acquired this
property as it shares its northern property line with the REIT's 55
Yonge St. office property. The two properties encompass
approximately 0.37 acres and the REIT submitted a re-zoning
application in January 2021 to
replace the existing 13-storey and five-storey office buildings
with a 66-storey residential and office tower with retail uses on
the first two floors. This further breaks down into approximately
12,000 square feet of retail space, 146,000 square feet of office
space and 283,000 square feet of residential space (approximately
500 residential rental units). The REIT expects to obtain approval
for its re-zoning and site plan applications in Q4 2022.
The REIT plans to submit a re-zoning application at its Front
St. property in Toronto, ON for a
69-storey mixed use development including retail, residential and
office uses. The development will replace the existing eight-storey
office building at 310 Front St., and will integrate into H&R's
larger office block which incudes 320 and 330 Front St. The project
will include approximately 118,000 square feet of office, 2,000
square feet of retail and 463,000 square feet of residential space.
The REIT expects to obtain approval for its re-zoning and site plan
applications in Q4 2022.
In addition to these projects, the REIT continues to advance its
intensification pipeline of projects within its existing portfolio.
Dufferin Grove Village at Dufferin Mall, which will include 1,135
residential rental units and 75,000 square feet of retail space and
the redevelopment of 145 Wellington St., which will include a
65-storey mixed-use tower consisting of 476 residential rental
units, 157,500 square feet of office space and 1,750 square feet of
retail space are both expected to receive re-zoning and site plan
approval in Q4 2021.
Office
In January 2020, the $256.0 million mortgage receivable secured by The
Atrium associated with the sale of the property in June 2019 was repaid.
During Q2 2020, H&R completed an agreement with the tenant
of one of H&R's office properties located in Dallas, TX that had been significantly damaged
by a tornado and a concurrent agreement with the insurance company
resulting in H&R receiving the following: (i) a lease
termination payment of U.S. $2.3
million in exchange for the tenant's lease expiring at
September 30, 2020 (previously
December 31, 2025); and (ii) a
settlement with the insurance company for U.S. $10.9 million. As part of this agreement, H&R
repaid the associated mortgage totalling U.S. $5.3 million at an interest rate of 5.4%. The
property was transferred from investment properties to properties
under development in Q4 2020 and was recorded at the land value of
U.S. $0.5 million as at December 31, 2020 compared to U.S. $10.0 million for land and building as at
December 31, 2019.
In November 2020, the REIT entered
into a lease extension and amending agreement ("Hess Lease
Amendment") with Hess Corporation ("Hess") for its premises in
Houston, TX, under which Hess has
agreed to extend the term of its lease on approximately two-thirds
of the building for an additional term of 10 years beyond its
current expiry of June 30, 2026. As
part of the lease renewal, Hess received a tenant inducement and
H&R paid related broker commissions which together totalled
$36.1 million.
Same-Asset property operating income (cash basis) from office
properties decreased by 3.4% and 1.6%, respectively, for the three
months and year ended December 31,
2020 compared to the respective 2019 periods primarily due
to the Hess Lease Amendment. Included in the year ended
December 31, 2020 were lease
termination fees of nil compared to $5.8
million for the year ended December
31, 2019. Excluding lease termination fees and the impact of
the Hess Lease Amendment, Same-Asset property operating income
(cash basis) increased by 1.0% in both periods.
Industrial
In January 2020, H&R purchased
a 50% ownership interest in a 93,330 square foot single-tenanted
property in Whitby, ON for
approximately $6.6 million.
In February 2020, H&R
purchased the remaining 49.5% interest in 7575 Brewster Ave.,
Philadelphia, PA for U.S.
$11.6 million. As H&R owns 100%
of this property, it is now consolidated in the REIT's Financial
Statements. The property is leased to Amazon.com, Inc.
In April 2020, H&R sold a 50%
ownership interest in a 363,983 square foot single-tenanted
property in Boucherville, QC for
approximately $17.4 million. This
property was previously classified as held for sale as at
December 31, 2019.
In Q4 2020, H&R completed construction of 205 Speirs Giffen
Ave., a 342,821 square foot property in Caledon, Ontario which is fully leased to
Deutsche Post AG for a 10-year term. H&R recorded a fair
value gain of $44.0 million as this
development was transferred to investment properties.
Same-Asset property operating income (cash basis) from
industrial properties increased by 5.7% and 5.8%, respectively, for
the three months and year ended December 31,
2020 compared to the respective 2019 periods, primarily due
to an increase in occupancy and increased rental rates on lease
renewals.
Residential
Same-Asset property operating income (cash basis) from
residential properties in U.S. dollars decreased by 20.5% for the
three months ended December 31, 2020
compared to the respective 2019 period, primarily due to Jackson
Park in New York which has been
negatively impacted by lower than average lease renewals and
prospective tenant inquiries as a result of COVID-19. H&R
believes this decline is temporary and expects operating
fundamentals to improve in the second half of 2021. Excluding
Jackson Park, Same-Asset property operating income (cash basis)
from residential properties in U.S. dollars increased by 2.5% and
6.9%, respectively, for the three months and year ended
December 31, 2020 compared to the
respective 2019 periods, primarily due to an increase in revenue
from rental rate growth and the stabilization of various assets in
the portfolio, partially offset by an increase in bad debt expense
as a result of the impact of COVID-19.
Retail
Same-Asset property operating income (cash basis) from retail
properties decreased by 1.7% and 13.2%, respectively, for the three
months and year ended December 31,
2020 compared to the respective 2019 periods, primarily due
to bad debt expense as a result of the impact of COVID-19. This was
partially offset by a decrease in operating expenses as a result of
the impact of properties being closed or partially closed due to
COVID-19.
Debt Highlights
As at December 31, 2020, debt to
total assets was 47.7% compared to 44.4% as at December 31, 2019. This is primarily due to
the negative fair value adjustment of certain office and retail
properties of approximately $1.2
billion. The weighted average interest rate of H&R's
debt as at December 31, 2020 was 3.6%
with an average term to maturity of 3.5 years.
Mortgages:
During the year ended December 31,
2020, H&R secured seven new mortgages totalling
$214.8 million at a weighted average
interest rate of 3.5% for an average term of 7.4 years and repaid
eight mortgages totalling $120.8
million at a weighted average interest rate of 4.2%.
Debentures:
In June 2020, H&R issued
$400.0 million principal amount of
4.071% Series Q Senior Debentures maturing June 16, 2025. In December
2020, H&R issued $250.0
million principal amount of 2.906% Series R Senior
Debentures maturing June 2, 2026. The
proceeds from both issuances were used to repay lines of
credit.
Lines of Credit:
In Q2 2020, H&R bolstered its liquidity by securing a
$500.0 million unsecured line of
credit from a syndicate of five Canadian banks for a one-year
term.
Taxation of Distributions
18.4% of 2020 distributions will be designated as taxable
capital gains. For taxable Canadian unitholders, 18.4% (2019 –
22.3%) of the distributions will not be subject to current income
taxes.
Monthly Distributions Declared
H&R today declared a distribution for the month of March
scheduled as follows:
|
Distribution/Unit
|
Annualized
|
Record
date
|
Distribution
date
|
March 2021
|
$0.0575
|
$0.690
|
March 23,
2021
|
April 7,
2021
|
Conference Call and Webcast
Participants can join the call by dialing 647-427-7450 or
1-888-231-8191. For those unable to participate in the conference
call at the scheduled time, it will be archived for replay
beginning approximately one hour following completion of the call.
To access the archived conference call by telephone, dial
416-849-0833 or 1-855-859-2056 and enter the passcode 7580319
followed by the pound key. The telephone replay will be
available until Friday, February 19,
2021 at midnight.
A live audio webcast will be available through
https://www.hr-reit.com/investor-relations/#investor-events.
Please connect at least 15 minutes prior to the conference call to
ensure adequate time for any software download that may be required
to join the webcast. The webcast will be archived on H&R's
website following the call date.
The investor presentation is available on H&R's website at
https://www.hr-reit.com/investor-relations/#investor-presentation
About H&R REIT
H&R REIT is one of Canada's
largest real estate investment trusts with total assets of
approximately $13.4 billion at
December 31, 2020. H&R REIT has
ownership interests in a North American portfolio of high quality
office, retail, industrial and residential properties comprising
over 40 million square feet.
Forward-Looking Disclaimer
Certain information in this news release contains
forward-looking information within the meaning of applicable
securities laws (also known as forward-looking statements)
including, among others, statements made or implied relating to
H&R's objectives, beliefs, plans, estimates, projections and
intentions and similar statements concerning anticipated future
events, results, circumstances, performance or expectations that
are not historical facts, including the statements made under the
headings "Business Update", "Financial Highlights" and "Summary of
Significant 2020 Activity" including with respect to H&R's
future plans, including significant development projects, H&R's
expectation with respect to the activities of its development
properties, including the building of new properties, the timing of
construction, the expected total cost from development properties
and the timing of transfer from properties under development to
investment properties, management's expectations regarding future
intensification opportunities including the timing of approvals for
re-zoning and site plan applications, the impact of the COVID-19
virus on the REIT and the REIT's tenants, the REIT's bad debt
expense, expectations regarding tenant retention and closures, the
expected rental revenues from leases with replacement tenants,
including any offset of a reduction in gross revenues relating to
store closures, and the significant revenue opportunity represented
by percentage rent participation, the state of the retail market,
expected capital and tenant expenditures, capitalization rates and
cash flow models used to estimate fair values, management's
expectations regarding the REIT's leverage and portfolio quality,
management's belief that Jackson
Park's decline is temporary and expectations regarding
future operating fundamentals, management's expectations regarding
future distributions, management's belief that H&R has
sufficient funds and liquidity for future commitments and
management's expectation to be able to meet all of its ongoing
obligations. Forward-looking statements generally can be
identified by words such as "outlook", "objective", "may", "will",
"expect", "intend", "estimate", "anticipate", "believe", "should",
"plans", "project", "budget" or "continue" or similar expressions
suggesting future outcomes or events. Such forward-looking
statements reflect H&R's current beliefs and are based on
information currently available to management.
Forward-looking statements are provided for the purpose of
presenting information about management's current expectations and
plans relating to the future and readers are cautioned that such
statements may not be appropriate for other purposes. These
statements are not guarantees of future performance and are based
on H&R's estimates and assumptions that are subject to risks,
uncertainties and other factors including those risks and
uncertainties described below under "Risks and Uncertainties" and
those discussed in H&R's materials filed with the Canadian
securities regulatory authorities from time to time, which could
cause the actual results, performance or achievements of H&R to
differ materially from the forward-looking statements contained in
this news release. Material factors or assumptions that
were applied in drawing a conclusion or making an estimate set out
in the forward–looking statements include that the general economy
is currently volatile and in an economic downturn as a result of
the COVID-19 pandemic and low oil and gas prices, the extent and
duration of which is unknown; interest rates are volatile as a
result of general economic conditions; and debt markets continue to
provide access to capital at a reasonable cost, notwithstanding the
ongoing economic downturn. Additional risks and uncertainties
include, among other things, risks related to: real property
ownership; the current economic environment; COVID-19; credit risk
and tenant concentration; lease rollover risk; interest and other
debt-related risk; construction risks; currency risk; liquidity
risk; financing credit risk; cyber security risk; environmental and
climate change risk; co-ownership interest in properties; joint
arrangement and investment risks; Unit price risk; availability of
cash for distributions; ability to access capital markets;
dilution; unitholder liability; redemption right risk; risks
relating to debentures and the inability of the REIT to purchase
senior debentures on a change of control; tax risk, and additional
tax risk applicable to unitholders. H&R cautions that these
lists of factors, risks and uncertainties are not exhaustive.
Although the forward-looking statements contained in this news
release are based upon what H&R believes are reasonable
assumptions, there can be no assurance that actual results will be
consistent with these forward-looking statements.
Readers are also urged to examine H&R's materials filed with
the Canadian securities regulatory authorities from time to time as
they may contain discussions on risks and uncertainties which could
cause the actual results and performance of H&R to differ
materially from the forward-looking statements contained in this
news release. All forward-looking statements in this news
release are qualified by these cautionary statements. These
forward-looking statements are made as of February 11, 2021 and the REIT, except as
required by applicable Canadian law, assumes no obligation to
update or revise them to reflect new information or the occurrence
of future events or circumstances.
Non-GAAP Financial Measures
The REIT's financial statements are prepared in accordance with
International Financial Reporting Standards ("IFRS"). H&R's
management uses a number of measures which do not have a meaning
recognized or standardized under IFRS or Canadian Generally
Accepted Accounting Principles ("GAAP"). The non-GAAP
measures NAV per Unit, FFO, AFFO, Payout Ratio per Unit, Same-Asset
property operating income (cash basis) and the REIT's proportionate
share as well as other non-GAAP measures discussed elsewhere in
this news release, should not be construed as an alternative to
financial measures calculated in accordance with GAAP.
Further, H&R's method of calculating these supplemental
non-GAAP financial measures may differ from the methods of other
real estate investment trusts or other issuers, and accordingly may
not be comparable. H&R use these measures to better assess
H&R's underlying performance and provide these additional
measures so that investors may do the same. These non-GAAP
financial measures are more fully defined and discussed in
H&R's MD&A as at and for the year ended December 31, 2020, available at
www.hr-reit.com and on www.sedar.com.
Additional information regarding H&R is available at
www.hr-reit.com and on www.sedar.com.
SOURCE H&R Real Estate Investment Trust